Sheep

Tuesday, April 21, 2015

Asia slows but others pick up the slack – monthly lamb exports

Key points

Lamb exports to Asia and Europe ease from 2014 levels in Q1; other markets are happy to pick up the slack.

The Middle East, the US and other markets such as PNG continue to absorb record volumes of lamb to drive total shipments to a record 58,597 tonnes swt in Q1.

Although global markets are struggling to “digest” the supply glut coming from Australia and New Zealand, the situation is expected to get better from May onwards.

Should seasonal conditions remain favourable, lamb markets will finally have scope to move another leg higher over the coming months.

Despite the yearly reduction in lamb exports to Asia and Europe during Q1 2015, stronger shipments to other key regions largely offset those shortfalls. This saw total volumes reach a record level of 58,597 tonnes swt, a 6% increase year-on-year. Many export markets were put to the test in Q1 on the back of a supply glut coming from Australia and New Zealand. However, that will soon come to an end.

Asia

Lamb exports to the largest overseas market, Asia, have slowed in Q1 on the back of increased competition from other markets, greater supply availability from New Zealand and reported lower domestic prices. Although lamb shipments to the regions fell 7.2% short of 2014 levels in Q1 to 17,503 tonnes swt, volumes were still the second largest on record.

The main reason for the reduction in Q1 exports to Asia was the subdued trade conditions seen in January, when shipments to the region fell 24% year-on-year. Since then, volumes have picked up substantially to see February and March exports move back on par with 2014 levels.

Middle East

In contrast to Asia, lamb exports to the Middle East tracked well above 2014 in Q1, assisted by a record monthly shipment in March. With over 6,500 tonnes swt of lamb meat exported to the region in March, a 37% surge year-on-year, volumes amounted to 16,037 tonnes during the first quarter of 2015. That represents a 14% increase on 2014 levels and is also 58% above the 5-year average for the period.

Trade conditions with the Middle East have been positive over the last few months despite the ongoing political tension, and more recently the uncertain impact of plunging oil prices on consumer spending. Over the coming months, demand is expected to strengthen in the lead up to the Ramadan.

US

Despite the reported increase in lamb stocks held in US cold storage, lamb exports to the US continue to track above 2014 levels. During Q1, 12,293 tonnes swt were exported to the country, a 3.7% increase year-on-year and 27% above the 5-year average for the period.

Europe and other countries

Lamb exports to Europe fell 13.5% year-on-year in Q1 to 2,651 tonnes swt on the back of plentiful supplies coming from New Zealand. Yet, the reduction in shipments to Europe and Asia were largely picked up by other markets to see the balance of exports surge 40% year-on-year to 9,749 tonnes in Q1.

What does this mean?

The record pace of lamb exports seen since the start of the year puts the intensity of lamb turnoff during the period into perspective. That, coupled with strong supplies coming out of New Zealand, has certainly created a temporary supply glut in export markets, with obvious consequences on prices.

At this stage, it’s hard to believe we are experiencing a shift in demand fundamentals. As such, when numbers start to taper off here and in New Zealand from May onwards, lamb markets will have scope to move another leg higher. By then, the lower A$ will finally give lamb markets an extra edge while keeping overseas customers without a hefty bill to pay.

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